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Category Archives: Tax Policy

First, as State House News reports (paywall), the Baker administration is about the business of reining in the overtime hours of the 39,000 people in the state who work as personal care attendants. PCA’s, as they are called, assist people who have severe disabilities with daily activities like getting dressed and bathing. This help enables many disabled people who might otherwise need to live in a nursing home to remain in their communities.

The cost of the PCA program is rising, and to cap that increase the Baker administration is restricting the number of overtime hours that PCA’s may work. As you may imagine (there being 24 hours in a day), many of the 26,000 people receiving PCA services require more than 40 hours a week of assistance. Nonetheless, the administration is targeting this program for savings by requiring advance approval by the state for any PCA working more than 40 hours per week, up to a maximum of 60 hours. No word on whether the administration is anticipating that this restriction might result in more nursing home placements of persons now able to live outside that setting.

PCA’s now earn $13.68 per hour, which translates to an annual income of $28,454 for a forty-hour week. (If you’re curious, the income necessary to afford a studio apartment in the state is $36,142).

Second, as DigBoston reports, the Baker administration is asking the Legislature to increase the amount of economic development tax credits the state awards to corporations annually from $30 million to $50 million, and also to allow the administration complete discretion to decide which corporations receive these new incentives (aptly named Extraordinary Economic Development Opportunity Credits).

By “complete discretion” to award these credits, the Baker administration is proposing that, to quote from its bill:

The decision by the secretaries to designate or not to designate a proposed project as an extraordinary economic development opportunity shall be a decision that is within the sole discretion of each of the secretaries, and may include such conditions as the secretaries shall in their discretion impose. Such decisions shall be final and shall not be subject to administrative appeal or judicial review… or give rise to any other cause of action or legal or equitable claim or remedy.

Wow – so much for the separation of powers. It’s not clear (to me at least) that this “extraordinary” delegation of authority to the executive branch to award tax credits, which expressly precludes any sort of court review to control abuses of discretion, would be constitutional. The Supreme Judicial Court has in the past approved laws in which the Legislature delegates its power to tax — but on the condition that certain safeguards have been met, including that some means of judicial review is available for parties aggrieved by the resulting decisions.

In any event, interested persons are invited to suggest to their Legislators that funding overtime hours for PCA’s to provide assistance to persons with disabilities is a higher priority, especially in this time of severe budget austerity, than funding extraordinary tax credits for favored corporations.

[Update: May 18: The amendment to impose a four percent surcharge on taxable incomes over one million dollars was approved by a vote of 135-57 (50 yes were needed to advance the amendment to another vote in 2017 or 2018).

House members voted in favor, 102-50 (the roll call is here). Senate members voted in favor, 33-7. The no votes in the Senate were: DeMacedo, Fattman, Flanagan, Gobi, Humason, Ross, Tarr. Everyone else (including newly-sworn GOP Senator O’Connor and newly-sworm Democratic Senator Boncore) was a yes. A list of the 40 Senators is here.

One of the 17 House Democrats voting no was David Nangle of Lowell, who denounced the amendment as “the introduction of class warfare.” “It’s stealing from the rich to give to the poor,” he added. “We are legislators. We are not Robin Hood.”]

The proposed state constitutional amendment to impose an additional four percent tax on taxable incomes over one million dollars will receive its first vote in the Constitutional Convention that’s being held tomorrow. This vote will be one step in deciding whether we in the Commonwealth think the cause of our perennial state budget shortfalls is a spending problem or a revenue problem.

Advocates of the proposed amendment collected 155,000 signatures last year (way more than twice the number required) to submit the proposal to the legislature. The Joint Committee on Revenue held a hearing in January and gave the proposal a favorable report in February.

At tomorrow’s Constitutional Convention, the amendment needs a yes vote from 1/4 of the 200 legislators in order to advance. If that happens, another yes vote of 1/4 of legislators in 2017 or 2018 will put the amendment on the ballot in November 2018. Under the constitution, these votes are roll call votes (or, in the quaint constitutional language, votes “taken by call of the yeas and nays”), so it will be possible to see which lawmakers vote which way.

Here’s some advocacy in favor of the amendment by Raise Up Massachusetts and in opposition by Associated Industries of Massachusetts. In legislative offices, operators are standing by to hear what you think — it’s your civic duty.

It’s looking like the film tax credit is going to be with us for quite a while longer. Last year the Governor’s idea of scrapping it altogether in favor of a tax credit for working poor families met with very stiff resistance from film tax credit fans. This year his more modest plan to prune it back to its Romney-era size (in part by imposing a cap of $7 million per movie and by eliminating the option to sell the credit) hasn’t really been heard from since its January launch.

But if we can’t stop this perpetual train robbery, we can at least learn where the money is going (h/t to Jamie Eldridge and other members of the Senate who succeeded in getting us this window to peer into). In 2014, the most recent year for which film tax credit information is available, one very big winner was Massachusetts native Mark Wahlberg, the star of Ted 2, which was filmed here that year. (If, like me, you haven’t caught Ted 2 or the original Ted yet, Wahlberg’s co-star is an animated bear and both stars’ vocabularies are largely scatological.)

We taxpayers ponied up $14 million toward Ted 2‘s production costs. For that money we could have paid for upgrades to 30 subway cars to extend their service for the better part of a decade or funded a year’s worth of rental vouchers for 2000 homeless families. So far, Ted 2 has taken in over $240 million in box office and video sales, an amount that ought to reassure investors in Mark Wahlberg’s next Massachusetts venture that the film tax credit is not strictly necessary to its commercial success.

And as we were particularly reminded this past Monday, Mark Wahlberg’s next Massachusetts venture is already in production. Opinions vary on whether it’s too soon for a movie about the Marathon bombing and whether a Marathon bombing movie made by Mark Wahlberg will ever be appropriate, but come December, we’re going to have one called Patriots Day. Wahlberg and his production company at CBS have tiptoed around the movie’s possibly explotative nature and have offered a solemn but indefinite vow to “get it right.”

Apparently getting it right does not include respecting the wishes of any 2016 Marathon runners who don’t care to appear in the movie.

Here’s an idea. If the Patriots Day folks are really interested in getting it right, they could announce that they’re making this movie on their own dime and won’t ask us taxpayers to chip in a quarter of the production costs via the film tax credit.

Amazon is coming to Fall River. The on-line giant announced yesterday that it will occupy a million-square-foot building that’s going to be built on the Fall River-Freetown line. The new warehouse, which in Amazon-speak carries the name “Fulfillment Center,” will join 50 or so similar facilities around the country.

So who among us can look forward to being fulfilled by the Fulfillment Center?

For starters, Amazon customers in Massachusetts, who can look forward to next-day delivery of their $600 premium foosball table with enamel screen-printed graphics or their Natura Bisse Oxygen Cream (immediately softens the most dehydrated skin, $88 for a 2.5 ounce jar).

Second, Amazon itself, which in addition to its profits gets more than $6 million in state and local tax breaks for choosing the Fall River site.

Third, Governor Charlie Baker, who’s pretty excited about it all (as is the predominantly Democratic Fall River area legislative delegation).

Anybody out there who’s not going to be so fulfilled?

Well, construction companies in Massachusetts, which lost out on the building contract. That went instead to a company from East Rutherford, N.J.

And the people who will be working in the new Fulfillment Center? Amazon is promising 500 full-time jobs at an average salary of $35,000. Which might well sound good to people in Fall River right now, where the unemployment rate remains stubbornly high. But that average salary will still leave a Fall River family of four about $25,000 short of what they need to live on (and 500 jobs is only half the number of jobs Amazon was promising Fall River a year ago).

Then there’s the issue of the working conditions at Amazon’s Fulfillment Centers. The Allentown, Pennsylvania, Morning Call newspaper has been covering the working conditions at Amazon’s nearby Lehigh Valley Fulfillment Center for the past five years. Anybody contemplating an Amazon job in Fall River and anybody who is unequivocally keen on Amazon’s arrival in the state might want to take a look at the Morning Call‘s stories about life in an Amazon warehouse: punishing productivity quotas that result in the firing of workers unable to meet them and injuries to many who try (keep in mind that workers must cover a warehouse that’s the size of 21 football fields); a management structure in which the real employer is not Amazon itself, but a temporary help agency called “Integrity Staffing Solutions,” which can take advantage of laws that limit its liability for unemployment insurance and can help reduce the risk of encroachment by labor unions through constant employee turnover; triple-digit temperatures in the warehouse during the summer (on this point, Amazon was at pains to say that it had arranged for paramedics to be in ambulances parked outside the warehouse to treat the severely dehydrated).

If you take another look at Governor Baker’s enthusiastic comments about Amazon’s arrival, you’ll notice that he’s very excited to help Amazon meet all its needs — and that the Massachusetts residents who will be working there are a mere afterthought:

“Our collaboration and partnership with Amazon is a good example of where the state has worked with, and will continue to work with, companies and help them meet their needs for everything from tax incentives to training new employees to permitting so that they can continue to grow in the Commonwealth.”

A reprise of an earlier post, in light of the Herald article today reaffirming the folly of the state’s film tax credit program.

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Original Post: May 7, 2013

Old joke – a merchant tells a customer that the goods he’s selling actually cost him more than he’s charging the customer for them. When he’s asked how he can afford to sell them at a loss, he answers: the profit comes from selling in volume.

Sadly, something akin to that joke is serving as the premise for our state’s film tax credit program: all our tax break giveaways are — somehow — going to boost our bottom line.

This is the eighth year Massachusetts has offered a film tax credit. For the first six of those years (2006-2011, the years for which data is available), the state gave away $327 million in credits. These tax credits attracted $186 million in new spending, which yielded $44 million in new revenue. That is to say, for every dollar we spent on film tax credits, we lost 87 cents and retained 13.

Given its abysmal record so far, why is it (to borrow a line from a movie that was not filmed in Massachusetts) that we just can’t quit the film tax credit? Let’s review.

In 2005, Massachusetts enacted a relatively modest film tax credit, which was signed by Governor Mitt Romney. The credit under that program was limited to $7 million, and it was not refundable. Also in 2005, director Martin Scorsese filmed a movie about Boston, The Departed. Most of the filming for that movie, however, took place not in Boston but in New York. And especially after that movie won four Oscars in 2006, people got to talking about how other states were poaching on what should be our movies and how we needed to do something about it.

So in 2007 (possibly influenced by one film director who said that film executives “would shoot a movie on Mars if they could get a 25 percent tax break”), Massachusetts opened the spigot wide, where it remains today. Now we reimburse film companies for 25 percent of their production and payroll costs, and we also throw in an exemption from the sales tax. Most significantly, the film tax credit is now refundable and transferable. This means that after the film company has paid the state taxes it owes, it can sell the remainder (usually at a slight discount) to a company or individual who owes state taxes and who can therefore capture the full value of the credit. As soon as he signed the legislation, Governor Deval Patrick (apparently unconcerned about criticism that the point of the the film tax credit was to let politicians hobnob with Hollywood celebrities) hurried off to hang with Denzel, who was in town filming The Great Debaters. And probably at exactly the same time, markets sprang up for the buying and selling of film tax credits.

Who’s buying them? Primarily insurance companies, financial institutions and other corporations that owe state taxes. Of the $327 million in film tax credits that have been generated since 2006, these organizations have purchased $280 million, or 86 percent. They have paid an average of 89 cents for a dollar’s worth of tax credit and thereby reduced the state taxes they would otherwise have had to pay by $30 million.

In the difficult budget years after he signed the film tax credit into law, Governor Patrick has lost some of his original enthusiasm. He now believes that the credit should be capped at $40 million per year. There’s no cap under current law. This is an entitlement program — filmmakers are free to come to Massachusetts and we are obliged to pay them 25 percent of their production costs, whatever those costs are. And if past experience is a guide, 87 cents of every credit dollar we give will simply disappear. The Department of Revenue estimates that the projects claiming the film tax credit in 2012 will cost the state more than $78 million. Representative Angelo Scaccia of Boston filed an amendment to the House budget last month to cap the film tax credit at $40 million, but it was rejected; the prospects for closing the spigot are not good.

So what to do? How about — if you can’t beat ’em, join ’em? The market for buying film tax credits is open to everyone. Maybe some civic-minded individuals or companies or individuals who owe state taxes could purchase tax credits at the going rate of 89 cents on the dollar and then, instead of keeping the 11 percent savings, donate it to a worthy cause. Or we can organize ourselves into (gasp!) collectives and then share the proceeds among us. As the insurance companies and financial institutions have demonstrated, there’s lots of money to be had. If they can make millions from this policy debacle, why can’t we?

Like this:

As I count down the days and hours until the August sales tax holiday, when I can save $20 on the four new (tax free!) tires my car needs because of the deplorable condition of our roads, some thoughts on how this year’s holiday came about.

As is typical, the Legislature waited until late July to enact the holiday bill, perhaps deterred by the words of the former Chairman of the Senate Ways and Means Committee, who once described the holiday as perhaps not the finest public policy on the planet. But as is also typical, by late July, retailers have already advertised not only the existence of the holiday but also have hinted broadly about when in August it will occur. And the Legislature does not excel at taking candy from babies.

This year, more legislators in both House and Senate joined the ranks of sales tax holiday skeptics, and this time they also had the Mass. Taxpayers Foundation in their corner (the holiday “is getting increasingly more difficult to justify”). But even as they scored more points than ever in the policy debate, they knew they were outnumbered, despite the fact that many of those supporting the holiday were pretty listless about it (Senator Marc Pacheco, one of their number, distilled this lethargy into a single sentence: “I will be voting for it reluctantly so that the Senate is not blamed for stopping it”).

The success of the sales tax holiday owes much to the inherent popularity of any law that lowers consumer prices, but not everything. The holiday’s primary lobbyist, according to the Globe, is an “aw shucks, good old boy” who’s very popular on Beacon Hill. The holiday also has think tank support from the (Koch-funded) Beacon Hill Institute. The Institute weighed in with the requisite charts and tables demonstrating the enormous boost the state economy would receive from the holiday, including the rather astounding news that this year’s holiday would generate as many as 860 jobs (note to the Institute: those sound more like “shifts” than jobs”).

And yet another factor: the Massachusetts Fiscal Alliance and their kinfolk at the Independent Expenditure PAC, Jobs First.

You may have heard of Mass. Fiscal during last year’s election season when their “voter education” efforts, which targeted 20 Democratic incumbents in the House of Representatives, came in for some harsh reviews, such as this one by PoliSci Professor Peter Ubertaccio and this one by David Bernstein at Boston Magazine (as well as this one by your author).

Mass. Fiscal’s voter education mailings charged the 20 targeted Democratic incumbents had taken the horrifying position that “illegal immigrants” (their term) should come before veterans on the wait list for state public housing vacancies. The professor and the journalist both concluded that this sort of “ridiculous, incendiary nonsense” purporting to be voter education amounted to an abuse of Mass. Fiscal’s tax-exempt status. As David Bernstein concluded:

If your purpose is to get average voters whipped up against an incumbent, the dozens of real, actual votes they take about various real, actual spending measures won’t be as effective as a vote supposedly about benefits possibly going to illegal immigrants, and linking that vote in a basically dishonest way to claim that those benefits are being willfully taken from veterans.

But with the help of the $410,000 chipped in by the Jobs First Independent Expenditure PAC, Mass. Fiscal delivered an average of 95,000 pieces of mail to each of the districts of the 20 targeted Democratic incumbents. That’s more than two pieces of mail for every constituent, and it amounts to an expenditure of $20,000 in each district. To put that number in context, a state representative is not doing too badly if his or her Committee-to-Elect averages $20,000 over the course of an election cycle. Of the twenty candidates selected for targetting by Mass Fiscal, eighteen were re-elected, but the mailings had succeeded in delivering their threat.

So you can imagine that the Democratic members of the House were not happy to find two recent missives to their inboxes delivered by Mass. Fiscal: one on the urgent need to provide MBTA management with “relief” from the onerous (which is to say, union-friendly) Pacheco Law, and the other on the urgent need for another sales tax holiday this year. Their letters to House members are at the end of this post (click to enlarge).

Mass. Fiscal’s June 24 letter on the Pacheco Law begins with a flex of its 2014 monetary and electoral pecs (95,837 pieces of mail per district) and then goes on to express its considerable disappointment that the Legislature’s Transportation Committee failed to provide the MBTA with relief from the Pacheco Law. What the letter fails to acknowledge is that the full House had already included that relief in the annual budget it passed two months earlier. (Note that the Herald editorial quoted approvingly in the letter does acknowledge the House budget action on the Pacheco Law.)

Therefore, with Mass. Fiscal having proven its commitment to misinformation, it would not be surprising if House members chose not to buck them on the sales tax holiday. If you’re a state rep with reason to think a “no” vote will later be used against you in an unscrupulous fashion — recast, perhaps, as a vote to tax veterans so that immigrants can go on a holiday, why bother?

The Justices of the Supreme Judicial Court have ruled that the income tax proposal the Senate included in its budget is not unconstitutional, ending the legal controversy, but not the political controversy.

The Senate’s income tax plan would freeze the personal income tax rate at its current rate (5.15 percent) rather than allowing a formula to remain in place that year by year automatically lowers it to 5 percent. The plan would also increase the personal income tax exemption and the state earned income tax credit, thus providing a modestly progressive adjustment to state income tax collections.

Opponents of the plan have taken to saying that the proposed freeze amounts to “breaking faith” with the electorate that voted back in 2000 to reduce the rate to 5 percent. The Herald used the phrase in a recent editorial. And Governor Baker repeated the charge in an interview on Boston Public Radio last week.

“Breaking faith” — that sounds grave. It’s a phrase that might lead you to think, for example, that the Legislature has never before tampered with a ballot question that the voters had passed. Well, that’s an assumption easily disproved. We can start with a pair of ballot questions, one from 1998 and the other from 2000.

In 1998, voters approved with 58 percent of the vote a ballot question providing for public financing for political candidates who agreed to fund-raising limits. The Legislature, whose leadership abhorred the new law, refused to provide the revenue necessary for its operation. The law remained on the books for a while, but the lack of funding kept it from taking effect.

In 2000, two years after the voters approved the public campaign financing initiative, a question to reduce the state income tax from 5.85 percent to 5 percent over the course of three years was on the ballot. Republican Governor Paul Cellucci strongly supported this proposal, and his administration worked hard to convince skeptical voters that the state could afford this enormous tax cut without cutting state services. The Governor’s Secretary of Administration and Finance was dispatched to proclaim that, far from resulting in service cuts, the tax rate reduction would stimulate economic activity and produce more revenue. In what was likely one of the last straight-faced invocations of the Laffer curve, the Secretary promised: “when you cut taxes you have a stimulating effect” (Globe, 10/31/2000). As it happens, the Secretary was Stephen Crosby, the current chair of the state Gaming Commission, who today promised that casino gambling will bring as much as $400 million annually to the state.

Voters approved the tax rate cut that November, although by a lesser margin than the public campaign financing initiative had received two years earlier. But even before the year was out, state tax collections had begun to drop precipitously: the tech stock bubble was bursting. Only weeks after promising no cuts in services, Secretary Crosby was rethinking the entire situation. “That’s a colossal drop” in tax collections, he said. “That’s like falling off a cliff. That gives the message that we need to be ready” for spending reductions (Globe, 12/24/2000).

And the next few years would bring even more problems — the tragedy of 9/11 and the additional economic bad news that followed. The Legislature turned to paring programs and services and they also used the fiscal crisis as an opportunity to repeal the public campaign financing law. Said Governor Mitt Romney in okaying the repeal — “I do not want to put in our budget, particularly in a year with the financial challenges we have, money going into a Clean Elections fund.” In addition to cutting services, the Legislature also halted the voter-approved income tax reduction at its then-current level of 5.3 percent and put in place a formula tying future rate reductions to growth during the prior year, which is how we arrived at the 2015 tax rate of 5.15 percent.

In order to pave the way for the repeal of public campaign financing, the Legislature placed a non-binding question on the ballot in 2002 asking voters whether they approved of using taxpayer funds to pay for political campaigns. Money raised from large corporations funded an ad campaign that persuaded voters to reverse their prior vote in support of public campaign financing. No comparable effort was launched with respect to the income tax cut, so we don’t know whether voters would have favored significant reductions in funding for their schools, libraries, police and fire departments.

In the 15 years since the voters approved the income tax cut on the basis of a promise that it would increase revenue, that cut has been responsible for much of the reduction in funding for important state services: higher education is down 20 percent; early education down 23 percent, public health down 25 percent; local aid down 44 percent. (Hat tip for the stats to MassBudget.)

So what does it mean to “break faith” with the voters? To freeze the income tax rate and provide a small governmental counterweight to the growing problem of income inequality? Or to continue to peddle a promise made the better part of a generation ago that never could have been kept?